CNB increases Countercyclical Buffer Rate

The CNB Bank Board approved the new
rate for exposures located in the Czech Republic at its meeting on 6 December
2017. “A number of factors spoke in favour of the increase. Rapid growth in
bank loans, especially loans to households for house purchase and consumption,
is continuing,” explained Vice-Governor Vladimír Tomšík. “This buffer is
aimed not at stopping lending, but at creating a buffer for worse times in the
current good times,” he added.

The countercyclical capital buffer
was introduced as an important macroprudential policy instrument in the
European Union in 2014. Obliged institutions are required to create this buffer
on the basis of the regulator’s instructions in periods of excessive growth in
lending. Excessive lending growth usually increases financial imbalances and leads
to a rise in systemic risk. By contrast, at times of falling economic activity,
accompanied by rising credit losses, this buffer should be released so that
non-financial corporations and households continue to have access to loans
without excessively tight conditions.

The CNB increased the rate from zero
for the first time in December 2015, with effect from 1 January 2017. The Bank
Board decided to raise it further to 1.0% in June 2017, with effect from 1 July
2018.